Aligning financial advice with client values

Values-based advice is about putting what matters most to clients at the centre of their financial plan. Australian Ethical’s Leah Willis explains why helping people meet their ethical goals can also benefit financial advisers.

By taking a values-based approach, financial advisers can align their advice with their clients’ aspirations and personal values – as well as helping them create wealth. This means you can go beyond simply investing according to a client’s life stage or tolerance for risk. Instead, you can create a holistic approach that also incorporates their unique goals and personal beliefs. This can create a plan your clients will be enthusiastic about – largely because it’s a reflection of what they hold most dear. One way you can help your clients connect their money to their values is by offering them an ethical approach to investing. So how do you go about meeting your clients’ values without sacrificing their returns?

Building trust with clients

Murray Nicol is the principal of Your Wealth Team in Melbourne. He says that moving into values-based advice was a natural progression of his own personal beliefs. Murray believes that offering clients the option to invest ethically provides many advantages for advisers – starting with their client relationships.

“Any conversation I have had about values and ethical investing has helped build trust,” he says. “The biggest thing about financial advice is getting to know your clients and having the client know that you have their best interests at heart. It has also helped with the conversation around a whole-of-family approach, where our clients know we have the best interests of the next generation in mind.”

When the practice initially explored ethical investing about 15 years ago, there were very few options available – with most labelled as ‘ethical’ merely screening out tobacco, firearms and perhaps uranium. Happily, this has now turned around. There are a wide range of investments that not only avoid harmful industries, but actively invest in new technologies and companies that are better for people, the planet and animals.

“Ethical investment is now very common – especially as the research houses have started to provide research in this area,” Murray says. “Now we find it much easier to construct an ethically-minded portfolio without having our usual investment considerations restricted.”

Murray says he and the other advisers in his practice initiate questions about values within the first or second meeting with new clients, which includes asking whether his clients are interested in investing ethically.

“We have a specific question on our client profile questionnaire. However, it is part of our general conversation with clients, as we go through the process of getting to know them.”

In the last decade, Murray has noticed an increase in those keen to find investments that align with their values. At the top of their concerns is climate change.

“Generally, this is a common theme. For example, we have one couple who specifically wish to avoid any investment in fossil fuels as much as possible,” he says.

Murray’s observations are supported by research conducted by The Australia Institute. Their report Climate of the Nation 2018 found that almost three-quarters of us are concerned about climate change and its impact on crop production, food supply and our environment. And 70% of Australians want the government to replace old coal plants with clean energy. Many of Murray’s clients have additional values they want to align with their investments.

“We have clients that are vegan, so this drives their ethical views to investing – and we have been able to find an investing solution that aligns to this,” he says. “Another common theme is human rights, which is more topical when considering overseas investments.”

Strong financial returns

Investing ethically doesn’t mean that clients need to sacrifice their returns to meet their values. Australian Ethical’s flagship fund, the Australian Shares Fund, outperformed the market and peers during the market downturn in the final quarter of 2018 and, more significantly, during the GFC where the fund outperformed the S&P/ASX 200 index by over 20 percentage points! There are many other portfolio benefits of Australian Ethical managed funds.

“A case can be made that an ethical value bias to your investments can strengthen performance by avoiding poor performing ‘old economy’ investments or sectors and embracing investments in ‘new economy’ ones,” Murray says. “I can’t recall any investor with an ethical value-based investment or portfolio complaining about poor comparative returns.”

Top 4 tips for offering ethical investments

  1. Build your knowledge. Learn more about ethical investment by accessing research from the Responsible Investment Association of Australasia (RIAA).
  2. Know your own personal values. Clients are likely to ask how you invest in line with your own values, so it’s important for you to be able to answer this confidently.
  3. Understand your clients’ values. Include prompts in your client questionnaire and other client-facing material to understand what’s important to them so you can help them invest appropriately.
  4. Talk to Australian Ethical to learn more about aligning your advice with your clients’ values.

Leah Willis is Head of Client Relationships at Australian Ethical.

Australian Ethical Investment Ltd (ABN 47 003 188 930, AFSL 229949).  This information is of a general nature and is not intended to provide you with financial advice or take into account your personal objectives, financial situation or needs.  Before acting on the information, consider its appropriateness to your circumstances and read the financial services guide (FSG) and relevant product disclosure statement (PDS) available at australianethical.com.au.

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